Do location and legal status matter in microfinance institutions’ performance? Evidence from sub-Saharan Africa

Tehulu, Tilahun Aemiro

doi:10.1080/09614524.2020.1853060

Cited by 9 publications

(14 citation statements)

References 19 publications

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“…These evidences suggest that although there has been significant decline in credit growth during the global financial crisis (specifically, during the year 2008), the decline may be due to shocks to the included firm specific and macroeconomic variables caused by the global financial crisis or some other factors. Similarly, though Tehulu (2021) using one-way ANOVA shows that credit growth varies across legal forms of MFIs, the GMM results reveal that legal status has no significant effect on the loan growth of MFIs when we control for MFI specific and macroeconomic variables. This implies that the different MFI specific variables included in our model have absorbed the predictive power of legal status.…”

Section: Discussionmentioning

confidence: 80%

“…The microfinance industry in SSA is also highly capitalized (Tehulu, 2021). It is argued that the effect of capitalization on loan growth for over-capitalized financial institutions could be less marked since financial institutions cannot force clients to borrow while they can prevent them from obtaining credits (Thibaut and Mathias, 2014).…”

Section: Literature Reviewmentioning

confidence: 99%

“…Empirical studies have confirmed that MFI credit supply contributes to poverty reduction (Imai et al , 2012; Elsafi, 2020). In this respect, the credit growth of MFIs in SSA is encouraging as the gross loan portfolio (GLP) is growing fast on average by about 42% annually (Tehulu, 2021). Nevertheless, Tehulu documents a significant variability in the credit growth of MFIs in SSA.…”

Section: Introductionmentioning

confidence: 99%

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What drives microfinance institution lending behavior? Empirical evidence from Sub-Saharan Africa

Tehulu

2021

IJOEM

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PurposeWhile poverty alleviation is the first core goal of Sustainable Development Goals (SDGs), and microfinance institutions (MFIs) are considered important instruments for poverty alleviation in developing countries as they provide credit access to the poor, there is surprisingly little evidence of the drivers of the lending behavior of microfinance institutions. Hence, the purpose of this study is to identify the factors that influence the credit growth of MFIs in Sub-Saharan Africa (SSA).Design/methodology/approachThe study relies on unbalanced panel dataset of 130 MFIs operating across 31 countries in SSA during the period 2004–2014 constituting 546 useable observations. The study uses the Arellano-Bover/Blundell-Bond two-step generalized method of moments (GMM) Windmeijer bias-corrected standard errors to estimate the models.FindingsThe results confirm that while capitalization, liquidity and size are positively associated with credit growth, profitability negatively impacts credit growth; whereas, other MFI specific factors namely portfolio quality, deposit growth and nondeposit borrowing growth have little direct effects on MFI credit growth. The results also show that MFI credit growth is pro-cyclical but negatively related to GDP per capita consistent with the theory of convergence. On the other hand, inflation and employment are not important covariates in the credit growth of MFIs.Practical implicationsThe findings suggest that if MFIs improve their liquidity and size by attracting more deposits and nondeposit borrowings, among others, they can increase credit access to the poor. Moreover, since the lending behavior of MFIs is not resilient to GDP shocks, different measures are needed to increase the financial stability of the microfinance industry. In this respect, since MFI capitalization is positively associated with credit growth and MFI credit growth is pro-cyclical, the findings provide useful insights to central banks/regulatory authorities and the Basel Committee as to the need for a counter-cyclical capital buffer requirement in the microfinance industry.Originality/valueThe study is the first comprehensive study to examine the drivers of MFI lending behavior as an extension to lending behavior models from the banking industry.

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Section: Discussionmentioning

confidence: 80%

Section: Literature Reviewmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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What drives microfinance institution lending behavior? Empirical evidence from Sub-Saharan Africa

Tehulu

2021

IJOEM

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“…Additionally, time‐invariant variables such as legal status and location could not be integrated into the FEM models; thus, we initially prefer to undertake sub‐sample analysis to examine if obtained results vary among these different samples. This sub‐sample analysis was further motivated by the findings obtained from existing literature, highlighting that legal status (Estapé‐dubreuil & Torreguitart‐mirada, 2015; Ghose et al., 2018; Tchakoute‐Tchuigoua, 2010) and location (Tehulu, 2021) may have an impact on the various performance indicators of MFIs.…”

Section: Results and Findingsmentioning

confidence: 99%

Loyalty of rural microfinance borrowers: International evidence

Mia

2023

Bulletin of Econ Res

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The growth and financial sustainability of a firm is tied to its ability to retain existing and potential clients. On the contrary, the defection of customers has a huge implication on firms including microfinance institutions (MFIs), suggesting that the attainment of customer loyalty is an important strategy for MFIs to improve their performance. Hence, this study attempts to investigate the level of loyalty demonstrated by rural microfinance borrowers toward their respective service providers. To accomplish this, an unbalanced panel data, comprising 1101 unique MFIs and spanning the timeframe 2010–2018, were obtained from the World Bank database and thereafter subjected to conventional econometric techniques and a series of robustness tests, including endogeneity‐corrected methods, alternative proxies, and sub‐sample analyses. The findings indicate that rural microfinance borrowers generally demonstrate loyalty to their service providers, particularly when measured by borrower retention rates; however, these findings vary with the adopted techniques, sub‐samples, and proxies employed during the analysis.

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“…Microfinance is the provision of financial services to low-income individuals and households, as well as micro, small and medium enterprises (Tehulu, 2021)…”

Section: Conceptual Review Microfinancementioning

confidence: 99%

Central Bank Regulations and the Financial Sustainability of National Microfinance Banks in Nigeria

Aliyu,

Gambo,

Enesi

et al. 2023

EJAAFR

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This study examines the impact of Central Bank Regulations on the Financial Sustainability of National Microfinance Banks in Nigeria. The study employed the expost-facto research design. Data was collected from the central bank bulletins and the financial reports of the sample seven national Microfinance banks. The data collected was analysed using Multivariate Analysis of Variance (MANOVA). The findings derived from the empirical analysis revealed significant relationships between the Minimum Capital Requirement, and the financial sustainability indicators, including returns on assets (ROA) and returns on equity (ROE) and confirmed that the Minimum Capital Requirement imposed by the central bank has a significant impact on the financial sustainability of microfinance institutions. Based on the findings of the study, the following policy recommendations can be made; Policymakers and regulators should continue to enforce and monitor the Minimum Capital Requirement for microfinance banks. Adequate capitalization is essential for the financial sustainability and profitability of microfinance institutions. However, the capital requirement should be flexible enough to accommodate the specific needs and characteristics of microfinance banks, considering their focus on serving the underserved segments of the population. And Microfinance banks should prioritize maintaining an adequate level of capital to ensure their ability to generate returns on assets. This can be achieved through effective capital management strategies, including attracting additional capital from investors, optimizing internal capital generation, and ensuring efficient use of capital in productive activities.

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Do location and legal status matter in microfinance institutions’ performance? Evidence from sub-Saharan Africa

Cited by 9 publications

References 19 publications

What drives microfinance institution lending behavior? Empirical evidence from Sub-Saharan Africa

What drives microfinance institution lending behavior? Empirical evidence from Sub-Saharan Africa

Loyalty of rural microfinance borrowers: International evidence

Central Bank Regulations and the Financial Sustainability of National Microfinance Banks in Nigeria

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